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Medtronic Remains Neutral - Analyst Blog

We have reaffirmed our Neutral recommendation on
Medtronic
(
MDT
) with a target price of $44.00.

During the first quarter of fiscal 2013, the company reported
adjusted earnings of 85 cents per share, up 8% year over year and
in line with the Zacks Consensus Estimate. Revenues were $4.008
billion, up 1.6% year over year (up 5% at constant exchange rates
or CER), nominally missing the Zacks Consensus Estimate of $4.015
billion.

We are encouraged to note that the core markets of US
implantable cardioverter-defibrillator (ICDs) and Spinal improved
during the reported quarter. As per the company's estimates, the
worldwide ICD market declined in the low-single digits. This was
accompanied by a 4% decline in the US ICD market, the lowest
decline witnessed in the last six quarters. Medtronic's US ICD
business was down 3% in the reported quarter, better than the
market. Moreover, the 4% drop in pricing was consistent with the
previous quarter. The US core spine market was flat with modest
improvements over the past three quarters.

We are impressed with the company's efforts to augment/diversify
its product range. We are optimistic that over the long term,
stability in the US ICD market along with a deep pipeline/portfolio
that includes - CoreValve, Resolute Integrity, Atrial Fibrillation,
renal denervation and peripheral businesses - will be the driving
factors for the company going ahead.

Medtronic has witnessed robust growth in the transcatheter valve
business on the back of CoreValve. While the product is CE Mark
approved, the company is working on its launch in the US, scheduled
in fiscal 2015. Over the long term, the Viva/Brava family of
next-generation CRT-D devices that received CE Mark approval in
August 2012 should boost the CRDM segment. Moreover, the Diabetes
business should benefit with the anticipated FDA approvals of the
MiniMed 530G insulin pump and Enlite sensor by the end of fiscal
year 2013.

The launch of the Resolute Integrity in the US helped the
company triple its market share over the past two quarters (market
share increased by 7 percentage points in the reported quarter).
Besides, international market share should increase further with
the launch of Resolute Integrity in Japan in August.

Meanwhile, emerging markets continue to remain a key focus area
for the company. Management is targeting to achieve 20% of its
revenues from the emerging markets by fiscal 2015−16.

However, several headwinds remain such as macroeconomic
uncertainties resulting in lower procedure volume. Growth in Europe
during the reported quarter varied with double-digit growth in
France, the UK and Ireland, partially offset by softness in
Southern Europe. The company also faces tough competition from
players such as
Boston Scientific
(
BSX
) and
St Jude Medical
(
STJ
).

Our neutral recommendation is backed by a Zacks #3 Rank ('Hold')
in the short term.

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